The news is full of confidence surveys in which consumers and business people say how confident they are that the economy is getting better and the future looks bright. There’s just one little problem: they aren’t acting it. They aren’t walking the talk.
You may remember that I have been warning you that the next financial crisis will probably start in the bond market. And it does look like we are getting closer. As Bloomberg notes, EU sovereign bonds have handed investors the worst start to a year on record. Losses are mounting quickly.
As I noted last week, I think we have seen the bottom in the gold correction. More evidence of that came today with the release of Friday trading data from COMEX. Last week, as the gold price began to fall towards its 50 day moving average where corrections usually end or breakdowns can begin, COMEX Speculators blew an enormous number of contracts out the window.
My regular readers will know my argument that the stock market is highly over-valued and that stock market performance is all about, and only about, loose central bank policy. The Fed has stopped money creation via QE and has started to raise interest rates. I have therefore been expecting the market to figure out that the reason for higher stock prices is leaving the building, leading to a serious stock market correction. Today we got new highs instead which makes me wrong at the moment. But my thinking has not changed. Central bank policy is still driving the bus and it is not going to work for much longer.
For the first time in many months, there is a hint of backwardation in the physical gold market. It means that demand is rising, dear reader, possibly a trend change. It means that holding physical gold may now be slightly preferred to holding U.S. dollars.
Any reasonable, objective estimate of real U.S. GDP growth over the next few years comes in at 2% per year or less. But markets are expecting a Trump economic miracle with real growth of 4% and more. The cheer leaders cite tax cuts, infrastructure spending and de-regulation unleashing a wave of new economic activity. But that’s not where growth comes from.
Today we learned that core retail sales growth in December was the weakest in almost three years. Except for continued strength in autos and gas, the data disappointed across the board. Excluding autos and gas, total sales were unchanged in December against expectations of a 0.4% surge during the key holiday period. Now you know why there has been an explosion of store closing announcements this month from Macy’s to Sears.
While you were sleeping, the Grinch came and stole pension money from millions of Americans.
In my last post, I explained how the rapid rise in financial assets is going to destroy retirement for many Americans. Counter intuitive isn’t it? Wealth in the form of financial assets measured in dollars has grown far too large for the economy measured in dollars, mostly due to central bank-induced ultra-low interest rates. Central bank policy has driven financial markets up without stimulating real economic growth. Now we have all sorts of claims on the economy in the form of rising debt, soaring stock prices and real estate that are far too large for the real economy.
As debt levels continue to soar, investors seem to have forgotten what debt means and the impact it will have on their retirement.